Last week Puerto Rican Gov. Alejandro Garcia Padilla, said the island, a U.S. territory, cannot keep up with payments on $72 billion in bond debt.

Most of that debt is held by Wall Street.

While some debtors think they can benefit from Puerto Rico’s financial crisis over the long term by seeking better terms for repayment of existing debt, others say the best thing for investors is to freeze the debt and allow a bankruptcy court to settle all claims.

John A. Brunjes, managing partner of QMG Investors, L.P., and a board member of the Connecticut Hedge Fund Association, said Puerto Rico’s debt crisis will hurt some members of the financial community who are holding the island’s debts but could offer new opportunities make money.

“If the debt is renegotiated, there’s an ability to get additional rights even if you have to take some losses in the original investment,” Brunjes said.

Right now, Puerto Rico is prohibited by law from seeking protection under Chapter 9 of the bankruptcy code that is used by municipal entities and cities like Detroit. States and U.S. territories cannot seek similar protection.

Blumenthal said that would allow Puerto Rico to repay its obligations “in a sane and rational way.”

“This issue urgently affects the financial health of Puerto Rico, but also the health of the bond holders and creditors throughout the nation,” Blumenthal said. “It really impacts the financial markets.”

Blumenthal also said the legislation would not result in a taxpayer-funded bailout.

“Puerto Rico would not receive any money from the United States,” he said.

Schumer said the two senators are still drafting their bill.

But Senate Judiciary Committee Chairman Chuck Grassley, R-Iowa, has been cool to the Schumer–Blumenthal plan and indicated Puerto Rico must have a plan to address its underlying financial problems before expecting congressional help.

Resident Commissioner Pedro Pierluisi, a Democrat and non-voting representative of Puerto Rico in the U.S. House, has introduced a Chapter 9 bill in that chamber.

Connecticut State Rep. Jason Rojas, whose parents were born in Puerto Rico, said, “Given the unique political relationship the island has with the United States, there should be some support from the U.S. government” that helps Puerto Rico with its debt.

Rojas, who represents East Hartford and Manchester, said federal aid to Puerto Rico need not be a bailout, but “assistance in some form that is appropriate.”

Rojas also said there’s likely to be an uptick in migration from Puerto Rico as the debt crisis puts new strains on an already weak economy.

Puerto Rico’s economy is in recession with a 14 percent unemployment rate and a credit crunch that is likely to result in major cuts to the island’s $10 billion budget.

South view of the Puerto Rico Capitol in San Juan

“We have a lot of movement (between Puerto Rico and Connecticut) on a regular basis,” Rojas said. “When you see a crisis like this one, it certainly leads to the potential for more people to move to Connecticut.”

More people who identify themselves as Puerto Ricans live on the U.S. mainland, 4.6 million, than on the island, according to the 2010 U.S. Census.

And the concentration of Puerto Ricans is higher in Connecticut than in any other state. According to the 2010 census, 7.1 percent of Connecticut’s population is Puerto Rican, followed by New York’s 5.5 percent and New Jersey’s 4.9 percent.

“There’s no exodus yet. But eventually there will be cuts to services that will prompt people to move,” Oyanadel said.

He said new migrants will be more likely to move to Florida and Connecticut, places that have established Puerto Rican communities, than anywhere else.

State Rep. Edwin Vargas, a Democrat who represents a south Hartford district, said the United States has a responsibility to help Puerto Rico, as Connecticut did when Waterbury was in a financial crisis.

Vargas is concerned the Republican-led Congress could condition any aid on some “pretty draconian” austerity measures.

“People on the island would then lose all hope,” Vargas said. “That would increase the migration to the United States, probably to places like Connecticut.”

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ABOUT THE AUTHOR

Ana Radelat Ana has written about politics and policy in Washington, D.C.. for Gannett, Thompson Reuters and UPI. She was a special correspondent for the Miami Herald, and a regular contributor to The New York TImes, Advertising Age and several other publications. She has also worked in broadcast journalism, for CNN and several local NPR stations. She is a graduate of the University of Maryland School of Journalism.